MRT 3’s operations are a burden to the state.
Uncertainties in the regulatory regime are preventing the private sector from taking over critical mass transportation operations in the country.
These risks were manifested this week when conglomerate Metro Pacific Investments Corp. (MPIC) declined to pursue a plan to rehabilitate, operate and maintain the Metro Rail Transit Line 3 (MRT 3) in view of government’s reluctance to grant tariff or fare hikes.
MPIC chairman Manuel V. Pangilinan seems to be resigned to government’s indifference to a fare increase. MPIC is not inclined anymore to resubmit its proposal to new Department of Transportation (DOTr) Secretary Vince Dizon.
The terms of reference for a proposed Public-Private Partnership (PPP) would not allow the fare adjustment and a fair return on investments―and Mr. Pangilinan knew ahead the finer prints of the future contract.
MRT-3 officer-in-charge director for operations Ofelia Astrera earlier assured rail line’s passengers that there were no fare hike petitions from its management.
“Right now, we don’t expect a fare increase. In previous years there were petitions, there would have been two [train] lines at the same time. But there was just a little technicality. Right now, we are just waiting for the direction of the DOTr central office,” Astrera said. “But for now, we don’t have a fare increase.”
With the build-lease-transfer (BLT) agreement between the government and Metro Rail Transit Corp. set to expire this year, the DOTr had planned to privatize the operations and management of MRT 3.
The government owns MRT 3 through the Light Rail Transit Authority (LRTA), while MRTC, owned by Metro Rail Transit Holdings II Inc. (MRTC) and led by unpopular businessman Robert John Sobrepeña, designed and built the rail transit system that runs along EDSA.
MRTC and the then Department of Transportation and Communications signed the BLT agreement to construct and maintain MRT 3. Formed in 1995, MRTC started building MRT 3 in October 1996. It completed the rail system in December 1999 and started full operations in July 2020.
MRTC financed the construction of the modern rail system stretching from EDSA’s North Ave. station in Quezon City to Taft Avenue in Pasay City. The company infused P4.49 billion worth of equity into the project.
MRT 3’s operations are a burden to the state. The low, unadjusted fares are causing the government billions of pesos worth of subsidy. MRT 3’s current base fare stands at P13, with the end-to-end trip from North Ave. station to Taft Station pegged at P28.
MRTC earlier sought an additional P2.29 boarding fare and P0.21 distance fare per kilometer to finance its operating expenses.
MRTC has claimed that the train system’s total expenses amounted to P8.96 billion for the 11-month period last year compared with a total revenue of just P1.1 billion, or a deficit of P7.8 billion. The low revenues mean a government subsidy of P88.34 for every passenger.
In addition, the government has to pay equity rental and other obligations to MRTC.
In contrast, the government approved a fare adjustment for LRT Line 1 and Line 2, the first train systems in the metropolis, consisting of an additional P2.29 boarding fare and P0.21 distance fare per kilometer, from the P11.00 boarding fare and P1.00 distance fare.
Commuting via MRT 3 is a faster and more reliable alternative than buses and jeepneys. The commuting time is more predictable and passengers enjoy a relatively safer ride. Rail commuters, thus, must pay a premium or higher fare than those charged by buses or jeepneys for the conveniences provided by the train system.
The subsidy or annual budgetary allocation from the national government, meanwhile, has kept the MRT 3 fares low. Other operating expenses, however, are catching up with the train system, resulting from poor maintenance and antiquated rolling stocks.
The Department of Finance (DOF) and the Japan International Cooperation Agency (JICA) in 2018 signed an agreement that provided the Philippines with a 38.1-billion yen loan from Japan for the upgrading and rehabilitation of the MRT -3.
The train system is in disarray. Then Finance Secretary Carlos Dominguez III said the MRT-3 has “degraded to a sad state” and “brought our commuters unspeakable hardship” to the point of becoming “a symbol of where our country fails.”
The early privatization of MRT 3 through the BLT is not also a good model for privatization, as noted by a past study of the Asian Development Bank (ADB).
Most successful privatization projects, according to the ADB study, have been the result of unsolicited proposals from potential investors in the form of Public-Private Partnerships (PPPs), with government corporations mandated to develop and operate transport infrastructure.
“In part, this reflects the lack of capacity within sector agencies for project planning and preparation. However, it also reflects a lack of clear principles and rules for the development of such partnerships,” says the ADB.
The study cited the MRT 3 as an extreme example, where the government “appears to be responsible for virtually all of the demand, commercial, performance, and financial risks, in addition to the political and regulatory risk.”
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